The Local Business Manifesto

The Local Business Manifesto

5,000 words on where we are today and where we can go for a healthy, prosperous, sustainable tomorrow.

Introduction

You’ve seen them. Those quirky downtowns and vibrant big-city neighborhood business districts filled with cafes, retail shops and small offices that dot the landscape of America. Maybe you’re lucky enough to still have one in your town or neighborhood.

Strong local businesses are the foundation of strong communities. The social engagement in those fabulous “third places” where everybody knows your name – the coffee shops, pubs, libraries, parks and more – leads to a tighter-knit society in which people are more likely to help each other and to care about the community’s outcomes. And the evidence is strong that areas with successful local businesses also enjoy better-performing property values, healthier citizens and are deemed more desirable for everyone from Milennials to the Greatest Generation.

But those business districts have for decades been under attack by the “formula businesses” – chain restaurants, franchise stores and big-box retailers. The economies of scale of these companies combined with the American devotion to the dual religions of price and convenience have led to a homogenization of much of the nation, to the point where many towns are virtually indistinguishable from the next. The resulting loss of each area’s uniqueness and diversity is tearing at the fabric of our communities. And along with those low chain-store prices have come low wages, or the elimination entirely of local businesses and the jobs they represent. So not only have we gotten lower prices, we’ve bought ourselves a lower quality of life along with it. Welcome to your McFuture.

But all is not lost. Evidence abounds that locally-owned businesses strengthen communities. Survey after survey confirms the common sense: local businesses, owned by and employing local people, are more likely to care what happens to those communities. Multiple examples are emerging of local businesses and communities who are banding together in the name of “buy local” and seeing direct results. This evidence bolsters the case for a new American future based on an interconnected series of sustainable local and regional economies built to withstand the impact of the global business casino and all of the negative externalities we’ve seen in the last decade.

To better understand where we can go, it’s good to have a look at where we are.

The Extractors

I call them The Great Extractors. Giant companies whose sole purpose to extract the resources in your community and ship them out to the home office and stockholders. So that’s what happens. When you shop at a big box store, nearly all of that money goes somewhere else. These massive corporations are legally bound to extract the greatest amount of money from consumers to bolster their profits and their shareholders’ returns. That is their responsibility and duty. They’re very, very good at what they do. So much so that in many categories like electronics, all local competition has been driven from the market. And community stewardship just isn’t on the menu, regardless of what the public relations department might say.

If you want to dig deeper, look at a graph that measures the rise of the “formula business” (chains, franchises, big box stores) and the rise of income inequality in America. As these companies get richer, communities all across America are the poorer for it. In fact, according to Stacy Mitchell of the Institute for Local Self-Reliance, eleven chains now capture 1 out of every 3 dollars Americans spend.

Let’s look at some of the Great Extractors.

Wal-Mart has permeated nearly every rural and suburban area in the country. They dominate the retail sector, and are beginning to dominate the grocery sector. They are the most powerful entity in the country at determining what you buy — whether you buy it at a Wal-Mart or not — because they control what gets made and grown.

In fact, the 2010 Dukes/Geylani/Liu study (PDF) showed that in their dominance over the entire retail sector, giant companies like Wal-Mart “use their channel power to influence not only the manufacturers’ wholesale pricing decision but also their choice of product quality.” In other words, by driving down product quality and longevity, they make it so other, high-quality retailers have no choice but to buy cheap goods, too, since that’s all the manufacturers are making.

We’re told when a Wal-Mart moves into town that it’s an economic development success story. (Think of the jobs! Think of the economic growth!) But a 2009 study done by Loyola University in Chicago describes the damage done to local businesses by a Wal-Mart opening in Chicago, finding that “the Wal-Mart opening on the West Side led to the displacement of a range of businesses” and that “there is no evidence that Wal-Mart sparked any significant net growth in economic activity or employment in the area.” I’ve seen it in my local area as well. Wal-Mart moves in, and then the bike shop, the sporting goods store, the hardware store and even the grocery store close because of the inability to compete. In fact, Wal-Mart is now driving other national grocery store chains out of some local towns.

Imagine there was a way for Wal-Mart to extract those resources from your community without even having to build a store. They wouldn’t have to spend money on construction or even hire local people for their low-wage, soul-crushing jobs. They could simply extract dollars out of thin air. Some would call that a nightmare situation. Others simply call it Amazon.com.

Amazon, a multibillion-dollar multinational giant, became the bane of every retail store’s existence in 2011 with the release of its’ PriceCheck smartphone application. Much was made in December about Amazon’s offer of $5 to people using the PriceCheck app to scan product bar codes and compare prices. These technologies are becoming so commonplace that major retailers are now demanding that manufacturers provide them with bricks-and-mortar-only products to eliminate this kind of comparison. There’s even a term for this behavior of using a retailer’s physical goods as a precursor to an online purchase — showrooming. So Amazon is not only extracting from local communities nationwide, it’s even using retail competitors as a free showroom.

The Internet giant enjoys another competitive advantage over local and physical retailers. Because its’ sales are on the Internet, Amazon claims exemption from state and local sales taxes. This approach has created friction for Amazon in states like Texas, California, Illinois and Nevada. In addition, its’ domination of the publishing industry through its’ Kindle application and device has accelerated the decline of the local bookstore and the printed book. They appear to want to dominate every retail purchase in the future, reaching the ultimate goal of extracting 100% of your purchase price from your community.

Even the most fundamental human need — food — is a fertile ground for the Extractors. From chain restaurants to brand-name consumer goods, the battle of the belly is allowing huge corporations to move local dollars into their coffers. The largest player in the restaurant business, of course, is McDonald’s, who sold over $27 billion in 2011. The Golden Arches are ubiquitous, with nearly 19,000 restaurants in the United States alone. It is in many ways the gold standard for American sameness.

Of course, McDonald’s isn’t the only Extractor in the food business. The chain restaurant industry regularly grosses hundreds of billions of dollars per year, taking a huge chunk of the half-trillion-dollar restaurant economy. But local purveyors make up an even smaller percentage of the over $500 billion spent in grocery stores annually. Meanwhile, the entire agriculture industry is subsidized so that these mega-chains can sell cheap, processed food by the billions to the millions, ignoring the enormous societal, environmental and health costs of monoculture production and feedlot cattle operations. Most of those subsidies go to wealthy farmers, who then grow on behalf of the monopolistic agribusiness giants. The food barons are so dominant in the U.S. that only four compa­nies pack 83.5% of beef and 66% of pork, and crush 80% of soybeans. Those corporations literally extract the nutrients of the land and labor of local farmers and turn them into profits for shareholders.

It’s tough to crown anyone the King of the Extractors, but if you were to try, you’d be hard-pressed to find anyone worse than the Wall Street banks. These venerable financial institutions claim to be the engines of capitalism, helping businesses large and small find the capital necessary to operate and expand. To hear them tell it, there would be no American dream without Wall Street. And then, sometime later, you find out, as Amy Cortese identified in her book, Locavesting, that only 1% of the big banks’ activity goes to what’s called “productive use,” which is essentially raising capital for business use. So 99% of what they do has no real impact on business at-large, and most of it is the same kind of wild speculation that led to the Great Recession.

What of the trillions of dollars in bailouts the big banks received? The intent was to grease the skids for a revival in business lending, but the banks are now sitting pretty on over $1 trillion while business lending has essentially ceased. Meanwhile, the derivative-based global casino fired right back up. In fact, it was reported in late 2011 that the entire derivative market was valued at over $700 trillion — more than 10 times the value of the entire global economy! If you are banking with a Wall Street bank or have money in the stock market, these villains could be playing poker with your money. Not only does this represent a massive extraction of local resources, the intertwined nature of the global economy makes it so that no one is immune to the next great crash.

The reason for that susceptibility to outside forces is simple: too much of the means of economic production is concentrated among too few global behemoth corporations that are designed specifically to extract for profit. It’s the system that is flawed, not necessarily the companies in it. There are good corporations and not-so-good corporations, and even though many Americans rely on these companies for their jobs, a wider distribution of companies inside the economy would undoubtedly be an improvement for all of us.

“results presented are remarkably robust in terms of the positive link between small firms that are locally owned and per capita income growth. Medium and larger firms appear to have the opposite effect, especially when they are not locally-owned. These include big boxes as well as other chain and non-chain operations that are owned by individuals who are not also residents of the community. While these types of firms may offer opportunities for jobs, as well as job growth over time, they do so at the cost of reduced local economic growth, as measured by income. Small-sized firms owned by residents are optimal if the policy objective is to maximize income growth rates.”

In addition, money spent at a local business cycles through the community to everyone’s benefit, from business owners to neighborhood schools to local charities. In their 2009 report “Thinking Outside The Box,” The Urban Conservancy and Civic Economics compared the economic impact of a proposed SuperTarget store against an equal square-footage of New Orleans’ Magazine Street. According to the study, “Magazine Street represents a form of urban development characterized by narrow streets with a decidedly pedestrian orientation, a focus on serving adjacent neighborhoods, smaller storefronts opening onto the sidewalk, and a rich mix of local proprietors focused on serving a local market.”

The study discovered that:

The average supercenter format Target occupies 179,000 square feet and achieves sales of $282.51 per square foot, yielding total store revenue of approximately $50 Million.

Participating businesses report total sales per square foot of $587 per retail square foot. Therefore, 179,000 square feet would generate an estimated $105 Million in annual sales revenue across as many as 100 individual stores.

Total recirculation of revenues for the hypothetical SuperTarget store was 16 percent and total recirculation of revenues for Magazine businesses was 32.1 percent. Therefore, in aggregate, locally-owned participating businesses return dollars to the New Orleans economy at approximately twice that rate.

The study follows other Civic Economics studies across the country that revealed similar advantages for local businesses.

In Austin, TX, local retailers were found to generate three times the local economic activity as chain stores.

In San Francisco, they discovered that if local buyers shifted just 10% of their spending to local stores, the economic impact would be $200 million annually, and the creation of 1,300 jobs with $70 million in payroll.

In Grand Rapids, MI, the same 10% shift was estimated to generate $137 million in economic impact, more than 1,600 jobs and $53 million in wages. The study also concluded that approximately 25 cents more of every dollar spent stayed in the community vs. chain stores.

While these studies show that thriving local businesses mean more money for local communities, there is also evidence that strong local businesses mean greater property values for homeowners. In October of 2011, American Express & Civic Economics released the American Express OPEN Independent Retail Index, which analyzed small businesses on a national, city and neighborhood level. The report “studied 27 neighborhoods where small businesses have thrived in 15 major U.S. cities. It found that home values in these neighborhoods outperformed their broader markets by 4 percent per year and 50 percent cumulatively over the past 14 years. The ‘indie hotspots’ in the 27 neighborhoods support an average of more than 1,800 jobs at independent retailers, restaurants and bars.”

The benefits of strong, local businesses extend to the housing preference of Americans. According to the National Association of Realtors’ “The 2011 Community Preference Survey,” nearly 60% of adults said they would rather live in a neighborhood that featured a mix of houses, stores, and businesses within an easy walk (which are usually neighborhood, local businesses), than a community of just houses that required driving to get to businesses (which are usually chain stores).

To top it all off, a 2011 study published in the Cambridge Journal of Regions, Economy and Society concludes that “entrepreneurial culture facilitates collective efficacy for a community and provides a problem-solving capacity for addressing local public health problems…communities with a greater concentration of small businesses, ceteris paribus, have greater levels of population health.” That’s right. Communities with strong, local economies are healthier.

Healthier. Wealthier. More unique. More desirable. More diverse. Those are the terms that these studies use to describe communities that support strong local businesses.

It’s Happening

And people are hearing the call. The resurgence in downtown America and on local farms is ongoing, and it is a vital part of the future of the American economy. People everywhere recognize that strong local economies are the best vaccine against the financial malaise that continues to envelop the globe. The building blocks of the sustainable, living local economies of the 21st century are beginning to form, beginning with the most basic human need: food.

FOOD & DRINK

Food is a big business. Eating is a vital part of human existence, and as a result, the food economy is a battleground filled with Extractors from the farm field all the way to the grocery store.

Decades ago, most Americans would visit the local butcher, the fishmonger, the farm stand and other independent vendors to buy their daily food supplies. Most of that food was grown or raised nearby, and delivered to the customer by the farmer. Choice wasn’t paramount, and this wasn’t the most efficient means of distribution, but in most cases, the eater had the opportunity to meet grower.

Today, not only do the eater and the grower not meet, in most cases there are about five other Extractor entities between the two. Genetically-modified, Roundup-ready corn is grown in a field, then broken down into its component parts to be reassembled later into Twinkies, GoGurt and Chicken McNuggets. As “beyond organic” farmer Joel Salatin would say, “Folks, this just ain’t normal!”

As the modern food distribution system begins to reach its apex, some people are noticing the perversions in the system, and longing for that one-on-one connection with the farmers who grow their food. They pine for food that is fresh and grown locally without chemicals or pesticides. This is the leading cause of the rebirth of the farmer’s market in America.

By 2009, with the help of documentaries like “King Corn” and “Food, Inc.,” and books like Michael Pollan’s “The Ominvore’s Dilemma,” the local food movement became a $4.8 billion dollar economy, and is projected to represent over $8 billion by 2011. And due to the local nature of organic farming, those dollars stay in communities at much higher levels than for people buying shipped-in goods at the supermarket, where both the food producer and the store’s parent company are located elsewhere.

In addition, organic farming has been proven to be a competitive method of growing food, rivaling conventional chemical farming in production volume, while vastly outpacing conventional methods in profitability. Chief among the local food solutions is the emergence of the CSA (Community Supported Agriculture) model. Simply put, customers pre-pay their local farmer in advance for their share of the harvest. That farmer-eater relationship is repaired, people get to eat remarkably better produce in season, and the government-subsidized middlemen are removed from the picture. Farmers nationwide are using this model to carve out a decent living while improving soil quality and building communities. (The ‘community-supported’ model has been so effective that it’s not odd to see a Community-Supported Fishing operation, or even a CSA for art.)

Restaurants are joining the battle as well. Many eateries, at price points across the spectrum, are sourcing some of their ingredients locally. Fresher ingredients simply taste better, and chefs honor their community by supporting local farmers. As developments like mobile abbatoirs, food hubs and kitchen incubators increase the ability of local farmers and producers to grow and create locally, the attraction of local food will only increase. At the center of much of this activity is the worldwide network of chapters of Slow Food, a movement begun in Italy to protest a proposed McDonald’s near Rome’s Spanish Steps.

Another development in that gives a sense of place to many communities is the resurgence of the local craft brewery. In 1910, there were over 1,500 active breweries in the US. Many villages and towns had their own beer, and it carried a sense of pride. Over the next 60 years, following Prohibition and the growth of the major corporation in America, the number of breweries greatly diminished. By 1970, there were just 142 active breweries in the US.

In 1978, President Jimmy Carter legalized home brewing, and that coincided with the rise of the microbrewery, the brewpub and the craft beer industry. Today, Brewers are recapturing the sense of place created by the local beer, and contributing greatly to local economies. As a result, there are now more than 1,500 breweries in America, more than any country in the world, while a similar movement follows behind with the emergence of craft distilleries.

Food and drink represent the largest way for people to support their local economies. Nearly everyone has the opportunity to dine at a local restaurant instead of the national chains whether that’s choosing the local sub shop or diner or pizza joint. Many people can now buy locally-grown and locally-produced foods at their local farmers market. There’s a movement now to help farmers markets accept government SNAP benefits via EBT cards, so that even the least fortunate can choose to eat healthy, local food.

MANUFACTURING

Food isn’t the only development on the buy-local front. Many cities and towns across America are experiencing a resurgence in local manufacturing. People are making things again for sale locally and through Internet sites like Etsy. You can likely buy a specialty craft product on Etsy right now that’s made within 50 miles of your doorstep, if not closer. These direct markets eliminate the middleman and are helping to prevent the dominant retailers from homogenizing every town in America.

In San Francisco, the nonprofit SFMade offers industry-specific education, networking opportunities, and connects local manufacturers to other local resources. One of the prime benefits of a strong local manufacturing sector are the jobs. As the organization says, “manufacturing consistently offers better wages and more benefits for even the most basic job roles, in turn, providing pathways to economic self-sufficiency for individuals with less traditional skills and education.” A similar organization, MADEinNYC, connects local manufacturers and producers in New York City with resources and provides a place for consumers to find locally-produced goods.

INVESTMENT & BANKING

One new technology-based vehicle for helping local products emerge apart from the Wal-Mart machine is crowdfunding. As big banks stopped lending during the financial crisis, entrepreneurs and makers needed an alternate vehicle for funding their projects. Beginning as a crowdfunding engine for arts projects, Kickstarter allows entrepreneurs to seek funding for their projects through multiple small donations from the public. In exchange for their contribution, donors receive things like products, t-shirts or other memorabilia, or in some cases, a producer credit on a movie to be filmed. Kickstarter has now funded projects as high as one million dollars. As a result of Kickstarter’s success, many other crowdfunding ventures are coming online or preparing to do so.

Congress is expected to pass a law in the near future that will allow crowdfunding for investment in business, where in exchange for money, an investor would receive stock in the requesting company. This vehicle could have great implications for local businesses looking to raise money directly from their community.

Other alternative funding mechanisms that are helping local communities build and sustain their local economies include co-operatives, direct public offerings, locally-owned banks and the Slow Money movement. These funding options create a closed-loop that keeps money cycling throughout a community and out of the global finance casino by allowing direct local investment options.

As people move their money closer to home, additional community-based efforts are sprouting up throughout the country to help grow strong local economies. The National Main Street program, part of the National Trust for Historic Preservation, has for the last 30 years attempted to build up downtown business districts all across the country. Now with an impact in over 2,000 communities, Main Street has become part of the lexicon of discussion around small business issues and spurred billions in revitalization.

With Main Streets on the rise, “Buy Local” efforts have been initiated in over 150 cities and towns to great impact. According to the Institute for Local Self-Reliance, “independent businesses in communities with an active “buy local” campaign operated by a local business organization reported annual revenue growth of 7.2% in 2011, compared to 2.6% for those in areas without such an initiative.” Encouraging the community to support local businesses works because people intuitively know that it’s the right choice, and they want to make that choice.

While individual consumers make those local choices, many towns are also drawing the line against the invasion of chain stores. There has been marked increase in recent years of municipalities restricting the entrance of so-called “formula businesses” into their jurisdictions. Areas such as Provincetown, MA, Fredericksburg, TX, Chesapeake City, MD and Port Townsend, WA have all used local land-use laws to limit the number of chains, and towns like Sonoma, CA and Banff, Alberta in Canada are currently debating doing the same to try and retain local character and prevent extraction.

Other actions beneficial to local businesses are coming not from towns or businesses, but instead from loose collections of everyday people. Cash mobs, originated when some Cleveland-area folks wanted to give a boost to a struggling local hardware store, are now sweeping the nation. People simply identify a local business or business district, coordinate a day and an amount to be spent (sometimes as little as $5 each), and then descend on the target, delivering an aggregate boost of community-powered health to deserving local entrepreneurs. A similar effect is found in the Crop Mob, where the crowd descends on a small, local farm for a day’s free labor followed, usually, by a dinner of farm fresh goodness. These spontaneous acts of generosity result in healthier businesses and stronger ties between the community and its’ local businesses.

Conclusion

There is a movement growing in different sections of the country. This collection of organizations, governments and individuals does not enjoy the multibillion-dollar promotional machine that the big corporations do, so it’s harder to connect all the dots and see the power of this emerging force. But it’s out there, and it’s likely right around the corner from you, if you look for it. If it’s not, then there is a great opportunity waiting for you to initiate it.

The evidence is clear that strong local economies benefit nearly everyone in the community. Over the next generation, we can build a national network of interdependent local and regional economies and build resilience against outside forces. This doesn’t mean that we drop out of the global economy, which is neither possible nor wise. What it means is we should increase the amount of our spending that circulates within our local economies. By shifting 10% or 20% of your spending to local businesses. By forgoing a fast-food drive-thru for the local sub shop. Or by using a local shoe repair service instead of plopping down for new shoes from Zappos. It also means trying to buy goods you can’t find locally from a similar provider serving a local community in another part of the region or country.

The 10% shift extends beyond buying decisions for many people, and into investing. If you are able, take 10% of your investment portfolio and diversify by investing directly into your local community. Organizations like Slow Money can guide you to the right information to make those investment decisions. And if you’re especially motivated, you can recruit others to do the same and begin leveraging group investments in strong local businesses.

No one in their right mind would ask you to do 100%, or even most, of your spending locally. It’s nearly impossible, as I discover when my children start begging for the latest electronic gadget or sporting equipment in an area where the only purveyors of such goods are chains. Even with my passion for local businesses, I’ve shopped at Amazon, Wal-Mart, McDonald’s and a major bank in the last six months for various reasons, and likely will do so again unless other options become available. Many towns, especially in rural areas, have been fully invaded by the chain stores and big boxes, not to mention the pull of Amazon and Internet retailers. So you can’t just flip a switch and buy 100% or even 75% local, nor would I ask anyone to do so.

But here’s what you can do — think local first.

It’s simple, really. When it’s time to go out to eat, buy groceries or clothes or services, think about the local implications of your buying. Develop the habit to quickly sort through the menu of local options, and getting to that 10% shift will be easier than you imagined. Don’t dwell on or feel guilty about the times you can’t buy locally. Instead focus on taking advantage of those opportunities when they arise, and you’re destined to build some great new habits that benefit your community.

So what should you think about when you think about buying local? There are four inputs to consider when evaluating a business:

Real Estate: Who owns the ground or building that the business occupies?

Ownership: The most important question of all – who owns the business? What do they do with the earnings? Do they spend it and donate it locally? Do they live in the community?

Labor: Obviously, jobs are important, which makes buying at the local Wal-Mart a better “local” option than buying from an Internet retailer who doesn’t employ in your community.

Goods: Where were the goods made? Does the restaurant or retailer source their goods locally? Do they use local services – construction, legal advisers, plumbers, etc.?

Buying local isn’t always a black-or-white choice. The key, however, is that you simply consider the local implications of your buying. If you can develop the habit of considering your choices, it will be easy to shift 10% of your buying to local businesses. And, as Civic Economics discovered in different parts of the country, that 10% shift can mean millions of dollars and thousands of jobs. This is how local resilience is born, developed and strengthened.

Again, instead of focusing on the negatives of chain stores, focus on the positive elements of your potential. Every time you pull out your wallet, you have the opportunity to vote for what kind of community you want to live in. You have immense power. By virtue of your choices, your community can be healthier, wealthier, more diverse, more resilient and more desirable. It won’t happen overnight, but the tiniest baby steps today can quickly snowball into a strong movement. Take those steps today to think local first, and help others to do the same. Over time, as we move in the direction of resilient local economies, you’ll see the benefits many times over.